Buying or Refinancing A Home After Bankruptcy, Short Sale or Foreclosure.
The guidelines below explain the waiting periods for bankruptcy, foreclosure and short sales when obtaining a new CONVENTIONAL LOAN.
Bankruptcy (Chapter 7 or Chapter 11)
A four-year waiting period is required, measured from the discharge or dismissal date of the
bankruptcy action.
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action
Bankruptcy (Chapter 13)
A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:
• two years from the discharge date, or
• four years from the dismissal date.
The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.
Note:The purchase of second homes or investment properties and cash-out refinances
(any occupancy type) are not permitted until a seven-year waiting period has elapsed.
Deed-in-Lieu of Foreclosure and Preforeclosure Sale
These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of
foreclosure is a transaction in which the deed to the real property is transferred back to the
servicer. A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure
resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.The following waiting period requirements apply:
Waiting Period Additional Requirements
Two years 80% maximum LTV ratiosa
Four years 90% maximum LTV ratiosa
Seven years LTV ratios per the Eligibility Matrix
The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.
Extenuating Circumstances
Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).
